European stocks finished at their lowest level in three weeks Thursday, hit hard by worries about a global trade war as the U.S. took steps toward slapping tariffs on China, a move that could hurt economic growth worldwide just as business activity in the eurozone is showing signs of slowing.

The Bank of England kept its interest-rate policy on hold as expected, and did little to dispel expectations that it could tighten policy at its May meeting.

How markets are moving

The Stoxx Europe 600 index
SXXP, +0.56%
fell 1.6% to end at 369.15, notching its lowest close since March 2, according to FactSet data.

In Frankfurt, the DAX 30
DAX, +0.49%
stumbled 1.7% to close at 12,100.08 and in Paris, the CAC 40 index
PX1, +0.67%
gave up 1.4% to finish at 5,167.21. The U.K.’s FTSE 100 index
UKX, +0.65%
dropped 1.2% to end at 6,952.59.

The euro
EURUSD, +0.2415%
fell to $1.2299 from $1.2338 late Wednesday in New York, giving up an intraday high of $1.2389.

What’s driving markets

A selloff in European equities worsened as U.S. stocks
DJIA, +0.37%SPX, +0.14%were mauled, moves that sent the Dow Jones Industrial Average
DJIA, +0.37%
down by more than 500 points intraday. Stocks suffered ahead of an expected announcement that the Trump administration will put trade restraints against China, the world’s second-largest economy.

The measures could be intensifying a long-running dispute in which the U.S. has accused China of engaging in unfair trade practices. European stocks had already been lower during the session after data firm IHS Markit’s closely watched readings on business activity in the eurozone fell short of expectations.

Separately, a report showed German business sentiment slightly dampened in March. Think-tank Ifo said its survey indicated the threat of protectionism in global trade is darkening sentiment in Europe’s largest economy.

In the U.K., the pound
GBPUSD, +0.4266%
initially rallied after the BOE kept its key interest rate at 0.5%, but with a 7-2 split of votes on the Monetary Policy Committee. That, along with signs that wages are firming, suggest that the bank is getting ready to hike rates in May.

What strategists are saying

• “Investors continue to display an anxiety about the path of interest rates against a backdrop of escalating trade conflicts,” said Craig Erlam, Oanda’s senior market analyst, in a note.

“On top of that, Donald Trump seems intent on starting trade wars, most notably with China, which could trigger a wave of protectionism and drive up prices in the U.S. and likely weigh on the growth momentum. How the central bank deals with this will be very interesting, given the already fast pace of hikes,” Erlam said.

• “The message from the Bank of England to borrowers couldn’t really be clearer: Get ready for higher rates now. Two members voted for a rate rise this month, and the Bank said nothing to dispel expectations that rates will rise in May,” said Ed Monk, associate director for personal investing at Fidelity International, in a note.

“The MPC breaks up now for a month and returns in May, with the signs pointing to a rate rise. Despite that, the upward trajectory of interest rates is still expected to be gradual,” he added.

Economic data

IHS Markit said its flash eurozone composite purchasing managers’ index — which covers both manufacturing and services — was at 55.3, a 14-month low. That was below the 56.8 consensus estimate from a FactSet survey of analysts.

The eurozone’s current-account surplus — which measures the flow of goods, services and investments — rose in January to €37.6 billion, the highest level in four months, according to European Central Bank data.

Halma PLC
HLMA, +0.72%
fell 2% as the safety, health and environmental technology company said its first-half foreign-exchange benefits reversed in the second half. It also forecast adjusted pretax profit for fiscal 2018 to be in line with market expectations.

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